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Financial management involves both acquiring funds and efficiently using funds to meet organizational objectives. Traditionally, the focus was on raising funds, but the modern approach emphasizes optimal allocation of funds. The objectives of financial management are maximizing profits and shareholder wealth. Profit maximization aims to increase earnings but ignores risk, while wealth maximization considers the present value of cash flows to maximize overall value. Financial managers are responsible for setting financial objectives, making investment decisions, managing cash flows, and procuring appropriate financing.

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39 views3 pages

So Nu

Financial management involves both acquiring funds and efficiently using funds to meet organizational objectives. Traditionally, the focus was on raising funds, but the modern approach emphasizes optimal allocation of funds. The objectives of financial management are maximizing profits and shareholder wealth. Profit maximization aims to increase earnings but ignores risk, while wealth maximization considers the present value of cash flows to maximize overall value. Financial managers are responsible for setting financial objectives, making investment decisions, managing cash flows, and procuring appropriate financing.

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0001sam
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We take content rights seriously. If you suspect this is your content, claim it here.
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Financial Management

Introduction:-
According to Wheeler – “financial management is the business activity, which is
concerned with acquisition and conservation of capital funds in meeting financial needs
and over all objective of business enterprise.

According to R.C Born: - The finance Function is the process of acquiring and
utilizing funds by a business.
In the early stage of industrial development, capital was not much
consequence and the financial requirements of the business were limited. As industries
grew and new method of production developed, it result in the increase in the financial
requirement of the business.
In recent time finance is known as The life blood of an
organization. Financial management is that administrative area of administration which
relates to the arrangement of the cash and credit so that the organization may have mean
to carry out its objectives as satisfactory as possible. Now the role of financial is changed
in the combination of increase competition among firms, persistent inflatin, technological
improvement that require considerable capital.
The term financial management can be proadly discussed under the
following categories.
1. Traditional approach
2. Modern approach
1 Tradition approach:- according to this approach financial function involves both
acquisition and utilization of finance. Up to 1950 this approach continued but now it is
not considered as the best due to the following reasons.
1. More emphasis on rising of funds.
2. Special attention as long term financing.
3. It ignores the problem of non corporate enterprises.
2 Modern approach: - according to modern approach financial management is not
only concerned with acquisition of funds but with the efficient utilization of funds. Main
content of approach are
1. What is the total volume of funds an enterprise should commit?
2. What specify assests should an enterprise acquire?
3. How should the funds required be financed?

Characteristics of financial management


1. Continuous function
2. Different from accounting function
3. wide scope
4. application to all types of organization
5. less descriptive and more analytical
6. centralized nature
7. measurement of performance
Objectives of financial management :- Financial management is concerned with
the procurement and use of funds. Its main objective is to use business funds in such a
way the earning is maximized. All type of originations weather big or small earlier
the financial management was confined. A financial manager has to see those
objectives are set in such a way that the goal of the organization are realized. There
are two types of objective of financial management.
1. Profit maximization
2. wealth maximization
1. Profit maximization:-Profit earning is the main aim of every economic
activity. Profitability refers where output exceeds input that is the value
created by the use of the resources is more than the total of the input
resources. No business can survive without earning profit. Profit is the
measurement efficiency in the enterprise. The accumulate profit enable a
business to face like fall in price, competition from other unit, overage
government policies. Profit maximization is the main objective of the
business. Profit objective criticized on the following ground.
Note:-
1. It can not be ascertained in the advance
2. It is the narrow outlook
3. It is ignore time value factor
2.Wealth maximization:-this is known as value maximization or net
present worth maximization. The scholars like Soloman Ezra and Horne viewed
that ultimate objective of the financial management is the wealth maximization.
This base on the view that inflow are greater than outflows this will maximize the
wealth. Wealth maximization means maximizing the net present value of the a
course action. The operational objective of the financial management is to
maximization of was:

W = A1/(1+k)+A2/(1+k)2+---------+An/(1+k)n –C
1. A1,A2-------An represent the stream of cash flow expected to occur from a
course of action over a period of time.
2. k is the discount rates
3. C is the initial outlay to acquise the assets.
If W is positive, the decision or the course of action should be
taken. On the other hand if W is negative the decision or course
should not be taken.
If W is zero it would mean that it does not add or reduce the
present value of assets.
Profit Maximization versus Wealth Maximization:-The objective of the
profit maximization measures the performance of a firm by looking at its
total profit. It does not consider the risk which the firm may take in
maximization of the profit. The profit as an objective does not consider
earning per share dividents paid or any other return to shareholders on the
wealth of the maximizing.
Status And Duties of financial Executives:- a big organization has separate
department to manage the financial function efficiently. The manager who looks after the
activities of financial department is known as financial manager. The financial manager
is a specialist in the area of business finance. The function of financial manager is as
follow:-
1. Formulation of objective:-The setting up of objective of finance department is
the basic function of finance manager. The objective must be in tone with the
over all objective of the organization. Other functional manager should also be
taken into confidence to achive co-ordination in financial management.
2. Investment decision:- the long term funds requires a careful assessment of
various alternative through capital budgeting and opportunity cost analysis. A part
long term funds has to be invested in the working capital of the company.
3. Management of cash:- Management of the cash in company help in smooth
out of the financial work. Cash is required to pay off creditors, purchase stock of
material and pay to labour and meet day to day expenses. The financial manager
has to see that all department of the enterprise get the required cash in time.
4. Procurement of finance;-The management can raise finance from sources like
shareholders,bank and

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